I had the opportunity on Saturday to attend the Kellogg China Business Conference at the Kellogg Global Hub in Evanston and participate as a moderator on one of the panels.
The timing of the conference was remarkable since it took place the day after President Trump raised tariffs from 10% to 25% on $200 billion of Chinese imports and announced plans to move forward with tariffs of 25% on an additional $300 billion of products. As I listened to the speakers and panelists it became clear that the current trade war and disagreements regarding tariffs are just part of a much larger set of issues between the world’s two largest economies and superpowers.
In fact, the current situation is a great example of what happens when two parties (which could be countries, companies, or neighbors) do not take the time to clearly understand the goals and perspectives of each other, or as I often quote St. Francis, “to seek to understand before you are understood.”
Let’s take an objective, non-emotional look from BOTH perspectives.
FROM THE U.S. PERSPECTIVE, it is very clear: China is not playing fair. If China simply followed the rules of the World Trade Organization like everyone else there wouldn’t be a problem. China is providing substantial subsidies for their advanced manufacturing industries, and they are discriminating against foreign companies trying to do business in China. They do not respect intellectual property. China is state-sponsoring hacking and guilty of “significant economic aggression.” If China operated as an “open market economy” everything would work fine. This perspective is reinforced by senior U.S. government leaders. Yesterday’s New York Times noted:
“Mike Pompeo, the U.S. secretary of state, compared China’s ambitions to Russia and Iran in a speech in London last Wednesday, saying Beijing poses ‘a new kind of challenge; an authoritarian regime that’s integrated economically into the West in ways that the Soviet Union never was’.”
, May 11, 2019
And then there are, of course, President Trump’s continuous tweets…
….The only problem is that they know I am going to win (best economy & employment numbers in U.S. history, & much more), and the deal will become far worse for them if it has to be negotiated in my second term. Would be wise for them to act now, but love collecting BIG TARIFFS!
— Donald J. Trump (@realDonaldTrump) May 11, 2019
FROM THE CHINA PERSPECTIVE, the U.S. is not playing fair. In the trade negotiations, the U.S. is making too many demands and offering very little in return. The U.S. expects China to play by their U.S. rules rather than respecting China’s system that has enabled China to be the fastest growing economy in the world for the past twenty years, lifting hundreds of millions of Chinese citizens out of poverty. American democracy does not work for everyone. Rather than a U.S. “free market economy” run separately from the government, China clearly prefers a “socialist market economy” with significant government control and ownership. This perspective is reinforced by senior Chinese government leaders. The New York Times noted that the Communist Party’s People’s Daily newspaper stated:
“The United States is again waving the club of tariffs after misjudging China’s strength, capacity and will, further escalating trade friction between our two countries.” Mr Lui He, China’s vice premier was quoted as saying. “We believe that these are major matters of principle, and any country has its own important principles — we can’t make concessions on matters of principle.”
At the Kellogg Conference, Tim Stratford, the Chairman of the American Chamber of Commerce in China and a former Assistant U.S. Trade Representative, gave the opening keynote on “Future of U.S. China Relationship.” He used what I thought was a fantastic analogy to explain the real dilemma:
Two teams are taking the field at Soldier Field in Chicago preparing to play football. The problem is one team is playing American football with helmets and shoulder pads, and the other team is playing European soccer. The team playing American football is the Chinese….prepared to protect their industries and tackle players coming into their territory. They go into “huddles” (close working relationship between companies and government). The team playing European soccer is the Americans….no helmets, fewer protection, no huddles, little coordination between government and companies. The American soccer players feel they are getting injured playing without protective gear.
So what is the solution? I do not believe either team is going to convince the other team to play by their rules. Both “teams” believe strongly that their rules work best. The challenge is to find a compromise, a middle ground, that respects the interests of both sides. Maybe it requires a bright group of open-minded leaders to create an entirely new “game.” I am hoping some of my current and former Kellogg students are those open-minded leaders!
Have a great week!!